HUD Inspector General: No “reasonable assurance” that ReBuild NC properly spent $2.5 million in Hurricane Matthew disaster relief

A new federal Inspector General’s report found that ReBuild NC couldn’t provide “reasonable assurance” that $2.5 million in Hurricane Matthew disaster relief funds had been “properly spent,” according to an audit dated Sept. 16 and published by the US Department of Housing and Urban Development.

If the state can’t provide documentation for those expenditures, it must repay those funds to HUD.

HUD gave $236.5 million for Hurricane Matthew disaster relief to ReBuild NC, also known as the NC Office of Recovery and Resiliency. More than four years after the appropriation, thousands of people remain out of their homes.

Construction delays are so severe that a state government oversight subcommittee held a hearing last week about ReBuild NC’s mismanagement of the program.

ReBuild has spent $145.3 million — or 61% — of its Hurricane Matthew HUD allocation. Nearly 10% of that money has been spent to house hurricane survivors in motels, apartments, and with family or friends.

At the legislative hearing NCORR Director Laura Hogshead told lawmakers that only 789 homes have been built. However, it is unclear whether the total includes roughly 150 houses that were constructed in Robeson County before ReBuild NC assumed control over that county’s program. Policy Watch has requested clarification.

The Inspector General’s audit covers earlier transactions, in 2018 and 2019. These purchases spanned the time when the NC Department of Commerce and the state Division of Emergency Management split the duties of administering the program — from August 2017 to December 2018 — and when ReBuild NC took over in January 2019.

ReBuild NC, though, is the responsible entity representing the state to HUD, the audit said.

The audit found that while ReBuild NC “mostly followed” payment requirements, several invoices were vague and didn’t provide necessary detail to justify the expenditures.

These errors occurred, the audit said, because ReBuild NC didn’t follow and fully understand its contracting requirements. Nor did ReBuild NC’s contracting policy clearly address that process for its staff to follow.

The Inspector General based some of its findings on a review of 25 payments, representing $5.5 million.

All the reviewed payments were for monthly project management expenses contracted to an outside firm, HORNE, whose agreement with ReBuild NC began in 2019, according to state records. Three invoices did not have adequate documentation: two were the responsibility of Commerce/Division of Emergency Management, and one was under ReBuild NC, totaling $2.5 million.

Separately, the audit found several shortcomings in ReBuild NC’s contracting process. These findings were based on a review of three contracts, worth $68.6 million.

ReBuild NC did not provide adequate documentation to support “cost reasonableness.” To justify costs, HUD grant recipients, including ReBuild NC, must do a price analysis for every contract.

Grant recipients also are required to independently calculate cost estimates before publishing a request for bids.  This allows grant recipients to determine whether a bid is reasonable, inflated or even artificially low. Failure to do those estimates before the bidding process starts  violates federal regulations, the audit said.

For example, in 2019, ReBuild NC issued a request for bids for construction management services, but without first completing an independent estimate. Although ReBuild NC did complete that estimate before the bids came in, it was only $4.6 million, according to the audit. That is far less than the average of all six bids — $16.2 million.

ReBuild NC told HUD that it had underestimated the number of hours needed, which resulted in the low figure. However, this information was not documented in the file to explain the disparity.

Rebuild NC eventually signed a contract with AECOM for $16.8 million. ReBuild didn’t renew its AECOM contract this year, in order to save money, Hogshead previously told Policy Watch.

In her written response to HUD’s Inspector General, Hogshead said a cost estimate is required before a bid only if it is “non-competitive” — a proposal from a single vendor. HUD responded that federal disaster relief funding requires this estimate, regardless of whether the bid is competitive or not.

Some of ReBuild’s problems pre-date its creation by the legislature in late 2018. From 2016 until early 2019, Mike Sprayberry was the director of the Division of Emergency Management. It was under his watch — and the Department of Commerce’s — that HUD designated North Carolina a “slow spender” of Hurricane Matthew disaster relief funds. Such a designation can jeopardize a state in receiving future federal disaster relief money.

Also during that time, the Division of Emergency Management signed a $16.7 million contract with IEM for project management services. The contract contained “unsupported cost estimates,” the recent HUD audit said.

(That contracting process was also fraught. As WBTV’s Nick Ochsner reported at the time, Sprayberry tried to steer the contract to a different company, ESP; IEM eventually won a re-bid.)

Hogshead wrote to the Inspector General that ReBuild NC inherited some of its contracting practices, and has since changed them, saying “Billing documentation requirements have been strengthened and the type of required documents are stronger. NCORR will work diligently to support the payments identified by the Office of Inspector General.”